When should I lock in my Variable rate mortgage?

A thought on the minds of many, with all the talk of ‘Historical low fixed mortgage rates’ and ‘rising Variable rates’.   “When should I lock in my Variable rate mortgage?”

Here’s a quick suggestion and rule that I follow… We only want to lock in our Variable rate mortgage when we think Variable rates will go way up and for an extended period of time…

But we must also look at what we can lock into… if you are in a 2.10% Variable rate mortgage, would you lock into a 3.89% fixed mortgage rate?   I’m not sure I would…. I think it will take a few years before my Variable rate mortgage approaches today’s Fixed rate…..  why pay more today when you don’t have to?

For me, I can’t see Variable rate mortgages underperforming Fixed Rates over the 12 to 17 years that it will take us to pay our mortgage off.  Having said that, we are always evaluating the Market Trends and will adjust our strategies when needed.  A mortgage is a huge debt and deserves a solid strategy to retire this debt with the lowest cost.

Ultimately, it will come down to risk tolerance, your personal budget and what you believe will be the better strategy.  Consult your Mortgage Broker to better understand the differences.

By the way, you might be interested in knowing that certain Banks and Trust companies have recently started to pay us more to offer fixed rate mortgages over Variable rate Mortgages…Good Mortgage Brokers don’t let the compensation dictate which product they recommend.  They recommend what they believe is right for the client.

3 year fixed mortgage rates under 3.00%

Fixed mortgage rates are sitting at around 3.89% for a 5 year closed and 2.90% for a 3 year closed.  These are definitely attractive rates and are at or near historical lows…

Why?  The Bond market has dropped significantly over the past 3 months…. this has come as a surprise to many but not all…  The economic recovery isn’t as certain as we once thought… with mixed data coming out about our economy, this uncertainty will cause interest rates to stay low…

Once trend that has caught our eye is that lenders are now offering Mortgage Brokers a higher commission to sell a 3 year and a 5 year fixed rate product… and although that may attract more busy from some, I’m still recommending the Variable Rate mortgage, even though we get paid less.. it’s always about doing what’s in our client’s best interest.

Variable rate has been a proven winner over the past 25 years… I don’t think our economy is as strong as some would think….There has been improvement but we have a long way to go before we can say we are out… Hence the lower fixed mortgage rates… Variable rates will increase but it will be a slow, steady climb… with current Variable rates at 2.10%, Variable has a long way to go before it is not cost-effective.

Banks are not without blame in mortgage fraud.

Now here’s a strange twist….   Read this report about a claim filed in BC that states BMO and RBC were “willfully blind” when approving mortgages for a marijuana grow-op…. The report says that a ‘cook’ and a ‘cashier’ owned this particular house at different times… Makes you wonder how a ‘cook’ or a ‘cashier’ could afford a house in Vancouver where average house prices are close to $1,000,000.

There’s an old saying, “when times get tough, the garbage will hit the fan”…. maybe there is another word used besides garbage, but you get the point.

During the last big recession in 1989-90, there were numerous reports about mortgage fraud.    It’s not that fraud only occurred during this time, it’s that Banks finally lost money when property values stopped increasing and started declining.  Fraud occurs all the time but it’s not something that the Banks want to report on for fear it will diminish their credibility in the eyes of investors and the public.

I have a suggestion.   Maybe the Banks should start to look within and see how they compensate their staff….Most banks now tie in their employee’s compensation directly to sales.  Credit cards, loans, lines of credit, bank accounts and mortgages. Every time the Banker sells one of these products they are compensated according to the sale….

What’s even worse are the 100% commissioned bank employees that sell mortgages… the so-called ‘Mortgage Specialists’… These sales people are paid based on the mortgage amount, the product, term and the interest rate.   It sure would be nice if ‘Mortgage Specialists’ were regulated like Mortgage Brokers… held accountable for all mortgage transactions under the Provincial government regulations….These regulations carry severe penalties for fraud….Just a thought?

Watch for more stories like this to unfold in the coming months…  hopefully, this won’t be an excuse for the Banks to charge more fees or raise the cost of borrowing…

Historical Rates updated…Canada reports job losses.. Fixed rates drop

Historical Rates

Here’s an updated chart that shows Fixed and Variable mortgage rates over the past 25 years…. click here.

Fixed rates drop again

Seems like it was just yesterday when we heard reports of mortgage rates going way up….  Posted Fixed rates fell again with RBC dropping their 5 year fixed rate to 5.59%.   Discounted 5 year fixed rates are now available at 3.89%…and Variable rates are hovering at around 2.10%.

Canada loses 139,000 jobs in July

Quoting a report from CBC.ca, Statistics Canada shows some cities improved their unemployment figures…but overall, we have few full-time jobs and more part-time jobs…  The recovery from the recession still seems to be headed in the right direction but this is definitely a speed bump that will slow us down..

The good news is for borrowers of money… interest rates shouldn’t go up in any hurry… in fact, we have seen fixed rates drop over the past 40 days…. watch for flat or modest rate movement over the next several months.

Lower housing and condo sales in the forecast

The Canadian Real Estate Association (CREA) has lowered it’s housing forecast again… they now forecast 459,600 resales in 2010..this is a 1.2% drop from 2009..

We’re also seeing signs the Condo market is starting to cool off… it’s been 16 years since condo prices have not increased.. 16 years!    We are certainly overdue for a cooling off period…

But this is just another sign our economy is not as ‘Red Hot’ as some first thought…  and it’s good news for interest rates…  The Bank of Canada is less likely to increase their rates as fast we once thought…

Give Variable rate more consideration.. Fixed rates have come down slightly… 5 year fixed rates are hovering around 4.09% to 4.19%…but Variable rates are available at 2.10%…

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